EU Aligns With OFAC’s 50% Rule, Expands Sanctions Control Test
The EU is considering entities to be subject to sanctions if they are owned 50% or more by another sanctioned entity or party, a move that aligns the bloc with the U.S. Office of Foreign Assets Control’s 50% rule. The announcement is a change from the EU’s previous position on the ownership test threshold, which had previously extended asset freezes to entities only if they were owned more than 50% by a sanctioned party, a law firm said this week.
The change, outlined in an updated sanctions guidance issued by the EU earlier this month (see 2407190008), “may provide legal certainty and greater co-ordination between the EU and US regimes,” Akin said in a client alert. But the firm also noted that the EU’s ownership threshold for sanctions now differs from the U.K.'s, which still applies asset freezes to entities only if they are owned more than 50% by a sanctioned party.
The new guidance “marks a significant change to the established position with regards to assessing ownership,” Akin said. The firm said this ownership threshold change and other portions of the guidance signal a “notable divergence from prior alignment between the UK and EU regimes, to alignment between the EU and the US instead.”
The firm noted that the EU also expanded its “control test” -- the process that EU companies must use to determine whether another entity or person is subject to the control of a sanctioned party -- and listed a set of updated red flags to help companies determine control.
In the new guidance, the EU said a party has that control if it has “the power to, de facto, exercise a dominant influence over a legal person or entity, without being the holder of that right.” Akin said the fact that this control criteria now references “de facto” power means the EU “explicitly” expanded the control test scope to include “arrangements that factually and practically facilitate the exertion of such power by [sanctioned parties], beyond formal legal arrangements.”
The guidance lists other red flags that could signal control by a sanctioned party. One red flag is that when a sanctioned party is the largest -- or majority -- shareholder of a company, even if it doesn’t own 50% or more of the company’s shares, that still could indicate “control” under the EU’s control test, Akin said.
The EU hasn’t provided a threshold for what it considers to be “majority” shareholding, Akin said, “although the example provided by the EU Council is 40%.” The firm said this “could create additional compliance burdens where, for example, a [sanctioned party] only has a 10% shareholding, but all other shareholders own less than 10%.”
Akin stressed that while the new red flags and the control test outlined in the EU guidance are both “largely consistent” with those put out by the U.K.’s Office of Financial Sanctions Implementation, they aren’t “identical.” This is “making compliance with both the EU and UK regimes increasingly burdensome for clients.”